Optimal Portfolio and Risk Averse
Not what you're looking for?
Suppose that a risk averse individual has $1, and there are three assets; one safe, and two risky. The safe one yields a sure rate of return of 1. The risky ones have distribution functions F(y1) and F(y2) where assets have independent and identical distributions. Show that both risky assets have the same share in the optimal portfolio.
Purchase this Solution
Solution Summary
The optimal portfolio is examined. The assets for independent and identical distributions are determined.
Solution Preview
The optimal portfolio is a linear combination of the risk free asset and optimal risky portfolio. So to prove that both the risky portfolios have same share in optimal portfolio, we need to prove that the optimum risky portfolio will have the same proportion of two risky assets.
Let w1 and w2 are the proportion of two risky assets in optimum risky ...
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.